A *very* interesting article on the mortgage mess

[darthcrank]

In my muddling about trying to get an understanding on how and why the mortgage mess has happened (and now what the heck to do about it), I run across this article...a little history lesson from just a couple years ago.   Look who the major players are in the story, it might affect your judgement come this November!

Direct Link: http://www.bloomberg

Comments

i guess that's one lesson..

[tricstmr]

.. but I think that's an odd way of seeing it, in my view. Yes, they are certainly central players in this whole escapade.. but merely claiming that by not having them exist, everything would be cool, is a very limited way of solving the problem.

To uses a rather simple historical analogy--if we look back at the Great Depression, the central problem that occurred was the existence of holding companies that issued stock and banks that did not abide by good accounting rules.

Would your solution to the great depression have been just to claim that if we got rid of banks and large private finanicial holding companies, that we could just prevent all such problems?

It's true--but it's also true that if we went back even further, we could just eliminate currencies altogether and solve all problems such credit and financial problems.

In any case the problem with Freddie Mac and Fannie Mae is not, in my view, that they exist--but that over the past 25+ years (since Reagan, actually), the strict rules that governed how they could do their job have generally been jettisoned. Oversight and stricter regulation and harder terms for credit and mortgages has been regarded by various people--most of them Republican Wall Street types (with a large helping of greedy democrats)--as unnecessary. This was bad.

Additionally, the existence of government institutions that offered such mortgages seems less central to the problem, in my view, than the unsupervised creation of "new financial instruments" like mortgage backed securities and these credit default swaps, etc etc--that were all done without anyone actually monitoring whether people were abiding by good accounting rules. The fact that mortgages just started getting passed around as if they were guaranteed sources of income--rather than as contracts with varying levels of risk--is a central problem here..

In the end, I would argue again that the central origin of the problem is not that these mortgages existed from the FM's.. but that people just stopped obeying common sense accounting rules. If people had made sure that these mortgages were assigned the proper amount of risk when they were offered to poor people at high rates--then people would not have treated them as guaranteed sources of income and would have been much more leery of accepting them as securities--or rather, if there had been someone who had evaluated such things and bitch slapped firms that didn't do this, then we would have stopped such shenanigans a long time ago..

Basically, I would conclude with another analogy that should make the point... Just a couple of years ago, a number of firms went belly up in catastrophic ways. Enron and WorldCom are two great examples. They enganged in faulty accounting practices--and then got caught. Their failure, however, was due to grand deception on their part, but also due to lax oversight by the government.

however, I do not think you would want to argue that because corporations can engage in questionable accounting and fuck a lot of people over, that we should ban corporations. We should just make sure they are watched.